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Employees challenging circular on interest subsidy tax deduction. Analysis: The petitioners, employees of a company, challenged a circular that directed tax deduction on interest subsidy paid by the company to financial institutions on behalf of employees availing house building loans. The employees argued that the subsidy was not a taxable perquisite under the Income-tax Act and that they were not obligated to avail loans from specific institutions. The company did not file a counter affidavit. The employees contended that the subsidy provided by the company did not fall under the definition of perquisite as per section 17(2)(iv) of the Income-tax Act. They argued that the company's subsidy was not in discharge of any obligation on their part to avail loans from specific institutions at higher rates. The counsel for the income-tax authorities defended the circular, stating it was in line with statutory provisions, and no prejudice was caused by tax deduction at the source. The court examined the House Building Advance Scheme and relevant Income-tax Act provisions. It noted that payment of interest subsidy by the employer to financial institutions on behalf of employees constituted a taxable perquisite under section 17(2)(iv) of the Income-tax Act. The court emphasized that such payments were not exempted under section 10 of the Act, rejecting the argument that the subsidy should not be deducted from employees' gross income. In conclusion, the court dismissed the writ petition, upholding the circular's validity and ruling that the interest subsidy was a taxable perquisite under the Income-tax Act. No costs were awarded in the judgment.
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